Good morning, good afternoon, ladies and gentlemen. Welcome to UAC of Nigeria PLC full- year 2024 results conference call. Please note that this call is being recorded. This conference call will be hosted by Fola Aiyesimoju, the Group Managing Director of UAC of Nigeria PLC, and Funke Ijaiya-Oladipo, the Group Finance Director. Following prepared remarks by UAC's management team, there will be an interactive Q&A session. I will now hand the call over to Fola Aiyesimoju. Please go ahead.
Thank you, Cynthia. Good afternoon, thank you for joining our results call for the 2024 financial year. As Cynthia mentioned, Funke and I will go through prepared remarks, make sure we leave enough time for Q&A at the end. We will try to cover the operating environment in 2024, initiatives we focused on, our financial performance, and our outlook for the business. We will also touch on topics that we know are important to you, including the decision around our dividend and the roadmap for our restaurants business. We won't follow the slide deck verbatim, we will reference slide numbers at the top right of each page for ease of navigation. Please now turn to slide five. A few years ago, we outlined our strategy for UAC anchored on three pillars: people, structure, and growth.
Having made significant progress on talent acquisition and culture, foundational IT infrastructure, and group simplification, which are key elements under our people and structure pillars. In 2024, we focused on delivering operational performance and growth. This focus translated to strong results. Revenue grew 63% year-on-year, nearing NGN 200 billion, and underlying operating profit grew nearly 9x. Funke will dive into the numbers shortly. Several factors contributed to this performance, none more important than the hard work, talent, creativity, and dedication of our colleagues across the business. Together, we anticipated high inflation decision around our dividend and the roadmap for our restaurants business. We won't follow the slide deck verbatim, we will reference slide numbers at the top right of each page for ease of navigation. Please now turn to slide five.
A few years ago, we outlined our strategy for UAC anchored on three pillars: people, structure, and growth. Having made significant progress on talent acquisition and culture, foundational IT infrastructure, and group simplification, which are key elements under our people and structure pillars. In 2024, we focused on delivering operational performance and growth. This focus translated to strong results. Revenue grew 63% year-on-year, nearing NGN 200 billion, and underlying operating profit grew nearly 9x. Funke will dive into the numbers shortly. Several factors contributed to this performance, none more important than the hard work, talent, creativity, and dedication of our colleagues across the business. Together, we anticipated high inflation and positioned the business to deliver growth without margin erosion. This required precise execution across pricing, product mix, and innovation. We also focused on operational efficiencies and passed on savings to the consumer where we could.
Our technology investments are paying off. We have greater visibility of our business, increasingly standardized processes, improved accountability, and simpler tools to help people get things done more effectively. We remain mindful that economic reform in Nigeria, while welcome, would bring short-term volatility. We work to protect our balance sheet. Talent immigration and competitive labor markets remained a challenge. We focused on investing to retain and develop our people. Slide seven outlines the macroeconomic backdrop that we operated in 2023-2024. It was marked by rapid change. Inflation rose from 24% at the beginning of the year, which is already elevated, to 35% by the end of the year. Interest rates rose to combat inflation. The naira devalued approximately 70% against the dollar.
These dynamics were difficult to manage. We took into account that they stem from necessary reform that we firmly believe lay the groundwork for a more stable and promising economic outlook. Slide eight shows key input costs, many of which rose well beyond headline inflation. With this context in mind, we'll move on to the highlights from the year. These start on page 10. As a refresher, particularly for new participants on our calls, UAC is focused on the domestic production, marketing, and distribution of branded consumer goods in Nigeria. We own some of Nigeria's most iconic brands and enjoy distribution scale with millions of units of sales daily. This brand strength and reach form a defensible moat. We're critical in navigating the challenging environment. On slide 11, we outline our focus on protecting margins.
We believe that profitable capital efficient growth depends on healthy margins. Margin protection was a key focus for us. We took a multifaceted approach. We are laser focused on pricing. We worked hard to broaden product offerings to provide the consumer with affordable options at the right margin. We targeted underserved markets. We drove operational efficiency, particularly around energy usage. We closely monitor energy consumed per unit of output and explore cleaner, lower cost energy sources. Thanks to these efforts, we were able to deliver meaningful salary increases to our colleagues without compromising margins. We also managed the balance sheet carefully, avoiding foreign exchange mismatches and optimizing borrowing costs, including tapping the capital markets alongside traditional bank financing. Slide 12 details key initiatives across the group. UAC Foods was successful with launching three new products tailored for growth in a tough environment.
At CAP, growth was driven by a combination of meaningful regional expansion as well as growing the mid-tier portfolio. We strengthened internal controls, fully transitioning to an in-house internal audit function. Talent remains our greatest asset. We relaunched the UAC Academy to groom future managers. We entered into a partnership with Oxford University and the Nigerian University of Technology and Management to develop our senior leaders. We launched the UAC Excellence Awards to recognize our top performers.
We are extremely proud of our in-house technology hub, which drives innovation across digital technology, business communication, and optimization of our ERP system. Slide 13 shows new product launches that I've just talked about, while slide 14 just shows images from our expanded paint factory and a new call center, both of which are aimed at driving efficiency and growth. Please turn to slide 16. The culmination of these efforts delivered the 2024 results: strong revenue growth, margin expansion, and meaningful increase in profitability. Funke will now walk us through the financials in more details.
Thank you, Fola, and good afternoon, ladies and gentlemen. Please turn to page 18, which shows the highlights of the group's financial performance. As Fola mentioned, UAC Group recorded very strong results in 2024, which are a reflection of the performance of the businesses across our group. Our consolidated revenue of NGN 197 billion in 2024 is 63% higher than the prior year. Operating profit of NGN 19 billion is nine times higher than 2023. Earnings per share also increased materially to NGN 4.97 from NGN 3.14 in 2023. Free cash flow improved to NGN 2.1 billion, and return on invested capital rose to 33% from 20% in the prior year. Please turn to page 18, which shows an overview of the group's income statement. Supporting the 63% increase in top-line growth were our core operating businesses.
Our edibles and feed business grew 54% to NGN 103 billion. This growth was due to price increases implemented to offset rising raw material costs. Our packaged food and beverages business revenue doubled to NGN 58 billion, driven by an average volume growth of 46% across the three categories: snacks, spring water, and dairy. This was supported by the strength of our existing brands, the launch of new snacks and dairy products, as well as price reviews. Our paints business revenue grew by 52% to NGN 36 billion and was achieved as a result of the company strategy to strike a balance between pricing to protect margins and ensuring adequate volumes. The Quick Service Restaurant segment's revenue declined 32% to NGN 2.5 billion, and the performance is reflective of two things.
The first is our strategy to rationalize unprofitable stores. The second is the impact of the high inflation on the discretionary income of consumers. Our gross profit margin improved, supported by the dynamic pricing strategy adopted by our businesses to protect margins alongside production efficiency and cost-saving initiatives, particularly in reducing conversion costs and energy costs. Across the group, operating expenses were NGN 30 billion in 2024. This was 51% higher than the NGN 20 billion recorded in 2023. The increase reflects the impact of inflation on operating costs, as well as the effect of the naira depreciation on expenses that are pegged to the foreign currency. The most significant increases across the group were personnel costs, distribution expenses, and electricity and power costs driven by higher electricity tariffs, increased fuel and diesel prices, and cost-of-living adjustments for employees.
Despite this, the operating expenses to sales ratio decreased by 126 basis points year-on-year from 16.8% in 2023 to 15.5% in 2024. This reflects the improved efficiency in business operations. Despite these inflationary pressures on input and operating expenses, UAC Group recorded NGN 19 billion in operating profit, which when compared to the underlying operating profit in 2023, was 780% higher. Net financing income of NGN 5.9 billion was recorded in 2024. This was positively impacted by higher yields on investments and gains in the HoldCo's treasury portfolio, which offset the increased borrowing costs incurred during the year. Share of profit from associate companies was NGN 723 million, down from NGN 860 million in 2023, mainly due to the high operating cost environment. Although UPDC and MDS Logistics grew revenue, profitability was [audio distortion], particularly at MDS, where rising costs outpaced top-line growth.
Profit before tax rose meaningfully, over six times to NGN 26 billion in 2024, compared to NGN 5 billion in the prior year. This reflects the strong recovery in operating performance and improved earnings across the group. Please turn to page 20. This slide shows the split of our operating profit. It reflects that our earnings are well diversified across our businesses with meaningful contributions from core segments. Please turn to page 21. This shows an overview of the group's financial position as at 31 December 2024. We closed the year with a net debt position of NGN 890 million, an improvement from NGN 2.2 billion in 2023. This reflects the total debt across the group of NGN 41.5 billion and our cash of NGN 40.6 billion.
Our debt profile remains largely short-term in nature and is primarily used to support working capital needs, particularly within the edibles and feed segment. We remain conscious of the impact of finance costs on profitability, especially in the context of a high monetary policy rate, and continue to actively manage and optimize our funding structure and costs. In 2024, the holding company accessed the capital markets, issuing commercial paper and a seven-year corporate bond at 21.5% to refinance existing debt and reduce finance cost pressure for subsidiary companies. CapEx of NGN 5.2 billion incurred across the group in 2024. The spend was broadly evenly split across our businesses and was largely focused on maintenance and efficiency-enhancing projects aimed at replacing and upgrading existing assets to support operational continuity and cost management.
For the paint segment, the key investment was the extension of the automated paint line, which was a key contributor to production efficiency in the last quarter of the year. Since the extension of the automated line in September, CAP Plc has been able to improve the lead time to produce paint. For the packaged food and beverages segment, the key investment was to upgrade the SWAN bottling line and also install gas infrastructure at the Dairies factory in Oregun, Lagos. This was part of our energy diversification strategy to optimize energy costs by leveraging a more cost-effective fuel mix between gas, diesel and power from the grid. The edibles and feed segment focused on the construction of a new warehouse in Sagamu to address long-standing space constraints and to reduce third-party storage costs, as well as office renovations.
Our cash conversion cycle increased to 106 days in 2024 from 83 days in 2023, primarily due to a deliberate buildup of inventory in our edibles and feed segment. This was a short-term buffer to mitigate against supply chain risks, particularly in a high inflation environment where input costs were rising. While this strategy increased our inventory days, we improved receivables and extended payables, reflecting continued discipline in other areas of working capital management across the group. This is the end of the financial highlights. I will now hand over to Fola to take us through the next section of the presentation.
Thank you, Funke, and please turn to slide 23. Here we outline our dividend proposal. In trying to decide on a dividend to propose to shareholders for approval, it was a very difficult set of discussions, and what I'll try to do is share our thinking. At UAC, shareholder value creations are North Star, and many of us in management are shareholders ourselves, and our long-term incentives are tied to shareholder returns. That said, we try not to shy away from difficult decisions if we believe they're in the best interest, long-term interest of the company and its shareholder value creation, even where these may be unpopular in the short term. In hindsight, some of those calls have proven to be correct, clearly not all of them. Those who have followed us for a bit longer would recall that in evaluating dividends, we consider stability.
We don't want to have dividends moving up and down the place. We previously shared our approach to maintain a stable payout at NGN 0.22 a share unless a change was justifiable and sustainable. In looking at our 2024 performance, we're very confident that a higher dividend can be established and maintained, which brings us to the second more nuanced factor in trying to determine the appropriate level of dividend to recommend, which is our investment pipeline. Where we see compelling opportunities to invest at attractive returns, we will pursue them.
We believe current conditions may present such opportunities, and preserving cash gives us flexibility to act decisively should these emerge. This was the thinking that we tried to balance in recommending NGN 0.22 kobo a share dividend in spite of our meaningful growth in profitability. On slide 24, we just talked briefly on our outlook. We remain very growth focused and increasingly optimistic about improving economic conditions. We continue to invest in technology, building on our recent efforts. A question we get often, and we haven't really addressed in the slide deck, is the plan for our restaurant business. It remains challenging and loss-making, largely due to its small scale nature. Expansion has been slower than planned.
We continue to strengthen the management of the business and be thoughtful around new location roll-outs and shutting down underperforming ones. That said, we are mindful not to over-allocate executive management time to this business. Looking back at 2024, we're happy that our focus on operational execution and growth came through in the financial performance. We intend to retain this focus going forward, whilst keeping an eye out for attractive opportunities that we think would add value to the business in the long run. Thank you, I will now take questions.
It is now time for the Q&A session. To ask a question, please raise your hand up or type in the chat box. Kindly introduce yourself and the organization that you represent before asking your question. To ask a question, please raise up your hand or type in the chat box. Kindly introduce yourself and the organization that you represent before asking your question. Your first question is from Edward. Please unmute yourself and go ahead.
Okay. Thank you very much and good afternoon. A quick question from me. Please can you give us an update on your paint business? I know in previous calls you've made mention of the paint business able to generate FX due to some of its products. I think some of its products are along the shipping line and also trying to establish a footprint across some West African countries. Is there any update on that? Thank you.
Thank you for the question. The paint business has two opportunities to generate FX income. The nearer term is its marine and protective business, which sells primarily into the oil and gas industry. It's a relatively small part, I'd say about five, 10% of CAP's business, but one that is a core focus area and growing.
That's doing well, and we're excited about the prospects there. As regards expanding regionally, we chose Cameroon as our first port of entry, for want of a better expression. We have a team that we've put there. We started exports from Nigeria and we're in the process of incorporating an entity there. Work is moving at speed, perhaps a bit slower than we would have liked, just given the need to set up properly in the country. The nearer term opportunity is going to come from scaling the marine and protective business.
Your next question is from Onome, from Green Ticker Research. She wants to know, are you considering a dividend payout during the middle of the year?
The short answer is we don't know. I think we strike the balance between returning cash to shareholders and investing. We have made a dividend proposal now because we feel that the number of opportunities that are emerging, and we need to preserve maximum optionality to exploit should they come through. We hope we're successful, but if they're not, then we'll have to evaluate our cash needs relative to investment opportunities and make a decision then. Nothing has been decided around what we may or may not do regarding dividends in the future.
Your next question is from Akunna of StanCapital, who wants to know if there is any segment within your business that you're most excited about. He wants to also know if you have any CapEx plans across the business segments, and also wants to get a sense of what you think Nigerian consumer demand is like.
I think the last one is probably the hardest one. I think Nigerian consumer demand is changing and depends on what time frame you look, you frame the question across. If you take sort of a five-year view, the first three and a half years of those five years, I would say consumer purchasing power was declining. Now, given that what we sell are basic goods, people will still eat and build homes and so on and so forth. What you'd have seen was down-trading, and in some cases non-consumption, but for the kind of things we sell, people typically consume them, even in down economic cycles, which is why you'd have seen that we've grown.
I would say over the last 12, 18 months, we've seen a sort of almost reflating of consumer spending power, and this is the positive trend that we hope to see continue going forward over the medium term. We have three big segments. We have our edibles, our food segment, our agro-allied or animal feed segment, and our paints or durables segment. You would have seen from the detailed home care run through that they're all growing very fast on both top line and profitability. It's difficult to say which one. They have very different characteristics.
The food and agro-allied have much bigger market opportunities, paints much higher profitability and return on invested capital. They also behave differently under different economic circumstances. We like the diversification that they bring. They all are performing well, and we think they have exciting opportunities. In terms of CapEx, it varies. I'll split it in two. We have a sort of regular, almost steady state CapEx, rolling out call centers, replacing equipment, adding packing lines and so on and so forth. That happens relatively evenly across our businesses. The one which based on its growth is demanding the most consideration for a disproportionate share of CapEx is our food business, just given how fast the volumes they are growing.
Your next question is from Chukwudi. He wants to know if you plan to unlock value by making a special exchange listing for Grand Cereals.
That is currently not under consideration, no.
Your next question is from Damola from Meristem Securities. She asks, In the next four years, what should we expect from the QSR segment, especially in light of the economic environment?
The answer over a four-year period will depend very much on our ability to execute our strategy. We found that although it's a very small business, that when you get an individual store right, the economics are quite attractive for that individual store. Given our view that we think sort of the decline in consumer purchasing power has at least stopped and perhaps turned, we expect to see a bit of a tailwind in the business that you can argue probably be on the more discretionary side of our portfolio. We have funding. We got a concessionary loan to roll out stores in this multi-class segment, there's the capital there ring-fenced for this. We're just being very, very thoughtful about where we put those stores and ensuring that they perform. I think the market opportunity will be there and probably get better. The question is how well we execute.
Your next question is from Chukwudi, who asks, In which part of the business are there acquisition opportunities?
First of all, when I say opportunities for growth, it may not necessarily be acquisition. Some of them may be organic. I will say, I'll tie this very much to the question asked earlier about which segment I'm most excited about. We see opportunities across all our three big segments, agro-allied, food, and paints or durables. What we do is just try to really rigorously and diligently evaluate these and figure out which have the highest risk-adjusted return, and that's where we will deploy our capital.
Your next question is from Manju from Themis Capital, who wants to know, given the high inflation rates of the naira, what precautions are you taking to mitigate its impact?
I would say a number of things. One is, the overall impact of inflation is reducing our earnings in real terms. We have to grow, we have to try to outgrow inflation. We have to be very careful about margins. Whether it's product formulations, stripping out, looking for efficiencies and pricing. We juggle all of these three. Because the central bank response will be to try to raise rates to bring down inflation, we also have to be very thoughtful around finding the most attractively priced capital we have, where we need to get external financing. I'll say a combination of these things, we juggle constantly.
Your next question is from Osaze, from Access ARM Pensions. He writes, I am not sure if you spoke about it, but can you explain the idea around the declared NGN 0.22 dividend? The market is not taking it well. Secondly, can you speak on your net USD position and how you see FX playing out this year?
Okay. Osaze, I did speak about this, it was a bit earlier in the conversation. I'm not sure if you recall that we sort of communicated an approach to dividends of setting a level and maintaining that level until a change. What we didn't want was NGN 0.22, NGN 1, NGN 0.15, so on and so forth. I think we said this a while ago. Looking at where we are today, where the business is relative to where it was at the time this was set, the profitability and scale have increased meaningfully. We are comfortable that the business can maintain and sustain a much higher level of dividend than we've recommended. I also stress that we're not cash hoarders. We're shareholders ourselves, we're driven by shareholder return.
We feel that given our view on where the macro is, there are going to be very interesting opportunities in the near term, we feel that although we may sacrifice short-term cash return, should we be able to act decisively if one of these opportunities comes our way, it will in the end result in much larger shareholder return. It's one that we spent a lot of time thinking through, but that's the thinking behind it. I will attempt a net USD position and Funke, please jump in if I misspeak. The first thing is we do not have any foreign liabilities. We have only one USD position. There's nothing to net it off. If memory doesn't fail me, across the group, we'll have between $16 million-$18 million. There's nothing to net it off because we don't have any liabilities. I don't know.
We're not a macro house, I don't know what FX will do. I will say that as an operator in the economy, we have a better feeling around overall macro, we see it beginning to creep into our numbers. How that translates into a specific FX rate, I don't know. It's not something that we spent a lot of time trying to model in any fine degree. We will maintain the discipline that we've maintained until now. We will not tolerate FX mismatches. We will try to make sure we have enough foreign exchange to meet our needs, plant equipment, inventory. We are beginning to see and are increasingly confident that the overall economic outlook is improving and will continue to do so.
To ask a question, please raise up your hand or type in the chat box. Kindly introduce yourself and the organization that you represent before asking your question.
Akunna, I see you have a question in the chat. I'm not sure what holdings you're referring to. You can please clarify.
You have a question from Chukwudi, who wants to know what is the level of your spending on R&D.
Chukwudi, this is one where I guess if you reach out, we can give you more specific detail. We're fully focused on investing for growth across all our businesses, and it's different things. In paint, we'll be developing offerings for the mid-tier. Foods is constantly tinkering, probably four or five products launched in the last 18 months. In feed, a lot of investment in performance. The feed business have decided to focus on the sort of performance segment of the market.
The exact figures, if you reach out to us, we can provide you with those. I see, Akunna, you've clarified your question, which is CAP separate listing. No immediate plans around the group structure. We did quite a bit of work about three or four years ago about group structure, and we've shifted focus, or we've sort of slightly tilted towards growth and operational execution. There are opportunities around further simplifying the group, but nothing that we're working on imminently.
Your next question is from Omir from Agusto, who wants to know what were the main energy initiatives implemented by the business to cut down overall operating costs.
It's a list of very, very small things that in some cases result in a halving of the energy consumed per unit of output. The choices of motors you use, the length of runs you have on your equipment, the culture to avoid energy waste, heat sources, cooling sources. It's a list of very, very many small things, and it doesn't drop in one day. I would say that in areas we have seen a meaningful reduction in the energy per unit produced. You see it drop sort of month on month over an 18-24-month period. It's very many small initiatives that lead to meaningful outcomes.
Your next question is from Yinka, from Nairametrics, who asks, Do you think your present net profit margin is okay? What are your plans going forward to improve it?
We're constantly working on improving margins, we think our margins where they are decent. We're not expecting given the current mix, because as the business mix changes, you see the margins move quite a bit, we think the margins are decent, we're constantly working to improve this. I think the biggest drivers would be as we continue our focus on sort of pricing and pricing product innovation and taking out cost efficiency, you will see the margins continue to head in the right direction. The second is scale. One of the things I should point out is as we grow quickly, we spread our cost base over a much bigger revenue, that also drives margin improvement.
Your next question is from Damola, from Meristem, who asks, Can we get details of your volume growth across the segments?
I'm not sure we disclose that. Again, Damola, you can reach out to us, or we can reach out to you, we'll see what is possible to share. We just have to be very careful that we don't give out too much competitive information that our competitors can pick up. Overall, I would tell you that our growth last year was mostly a combination of both volume and price growth. The area that I would say had the sort of weakest growth was the animal feed segment because of a deliberate strategy to focus on the high performance feed section. The rest, you would have seen both on volume and price growth.
To ask a question, please raise up your hand or type in the chat box. Kindly introduce yourself and the organization that you represent before asking your question. Your next question is from Osaze, from Access ARM, who wants to know if you can speak on the drive to increase export share of revenue, and what are the plans being taken to achieve this?
Osaze, I'll say this is still in very early infancy, I would say for two reasons. One was about maybe 24 months ago, we would have maybe overweighted this. Like I mentioned, we've seen a reflation, whether it's a bottoming, I don't know, of opportunities here. A lot of what we've delivered was on making sure we didn't take our eye off the ball in what is still a very large and meaningfully underserved market being Nigeria.
We have initiatives on the go to export things like snacks, to export things like paint. I don't expect those to be meaningful contributors to the group in the near term. They are on the go. Sort of export licenses have been obtained in one set for the paint business and an entity is being established. I would think of all those as long-term, things that will pay off in the long term versus things that are going to have any meaningful reporting impact in the near term